Thinking Outside the Valley

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By Village Capital and MetLife Foundation

Tech titans (and those who follow or write about them) have been speculating about the next Silicon Valley practically since the rise of the original. The enduring appeal of the guessing game suggests something worth remembering: There is nothing predestined about where great centers of innovation may arise. Unlike products tied to the natural world (think: the noble vineyards of France whose soils produce grapes that could not come from anywhere else on Earth), ideas can grow anywhere. Here at Village Capital, we think Poland could be the next big center for fintech (technology-driven innovations in financial services). Poland is a key exploratory focus for Village Capital based on what we call the “the 3 P’s”—policies, people and purpose.

Policies. Warsaw is already a regional leader with the largest stock exchange in Central Europe, significant foreign investment in the banking sector and the most active private equity market. The commercial banking sector is relatively concentrated: The six biggest banks have a 70 percent market share. They cooperate when it is in their collective best interest and have already created a joint venture to make mobile payments a serious alternative to credit cards. Now Polish policy makers have made it a priority to position their nation as Europe’s startup capital, too. Over the last 15 years, both the Polish government and the EU have backed local venture capital funds, helping seed the early-stage capital market for aspiring entrepreneurs.

People. The Polish people are among the most tech-savvy early and fast adopters, with a rate of online banking adoption well above the EU average. They have demonstrated an appetite for fintech, and the market is evolving rapidly to serve that appetite with everything from solutions that make cash easier to get to others that eliminate the need for cash altogether. Residents of Warsaw can use Idea Bank’s app to order an ATM on wheels to come to their doorstep. They can sign up with mBank, a fully regulated, fully mobile bank (rather than a mobile experience grafted onto an existing bank). Regardless of the specific fintech innovation, Polish consumers are avid product adopters who can provide valuable feedback before scaling across the region—critical traction for the Village Capital firms that back fintech startups. As this blog put it, venture capitalists are like the artist and repertoire teams from the record companies, scouting and signing new bands based less on the music itself than on the audience’s reaction to the music.

Purpose. Not all venture capitalists are the same. Village Capital identifies, nurtures and invests in startups with the potential to solve real-world problems, such as financial health. Defined as a household’s ability to manage its income and expenses, weather financial shocks, and plan for the financial future with a long-term perspective, financial health is a worldwide challenge. Even in rich countries, middle- and especially working-class people may live paycheck to paycheck: A well-known magazine story from 2016 found that nearly half of Americans would have trouble covering an emergency expense as low as US$400. The average Polish household scored square in the middle of a financial health survey, conducted among a representative sample of 12,000. Most had manageable debt loads and paid bills on time, but the resilience to shocks and long-term planning scores were worryingly low. So Village Capital is especially interested in fintech innovations that can help Polish households build their financial health.

For Village Capital, in short, Poland is a near-ideal convergence of favorable policy environment, hot market and mission alignment. Despite the high potential, though, we still see some critical barriers within the fintech startup ecosystem—in particular a fourth “P”: partnerships. The venture capital and entrepreneurship ecosystems lack the collaboration and interconnectedness of stakeholders that help startups gain valuable feedback quickly, find pilot customers and grow beyond their local region.

Village Capital recently launched a two-year partnership with MetLife Foundation to harness the power of venture capital to the goal of financial health in select countries in Europe and the UAE. Starting in Poland this spring, we will:

Host a financial health roundtable that convenes top experts from across the ecosystem, including startups, investors, regulators, banks and corporations

Select and provide business development support to a group of 10-12 startups seeking investment to scale their innovations across Poland

Showcase the participating companies through a Financial Health Forum, in which two participating ventures will receive US$10,000 grants from MetLife Foundation

Partner with a local financial technology accelerator to help provide best practices in startup development and an international network of stakeholders through our VilCap Communities initiative.

We are looking forward to seeing the startup energy unleashed—and seeing how that energy helps Poland fulfill its huge potential as a world center of fintech innovation.